European stocks rose in the last trading week of August, as traders pondered the prospect of a US Federal Reserve rate hike and looked forward to upcoming economic data later in the week.
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|.FTSE||FTSE 100 index||7,338.58||+4.95||+0.07%|
|.FCHI||CAC 40 index||7,325.85||+96.25||+1.33%|
|.FTMIB||FTSE MIB Index||28,547.00||+338.55||+1.20%|
|.ibex||IBEX 35 IDX||9,492.90||+154.00||+1.65%|
Germany’s DAX 30 rose 1%, France’s CAC 40 rose 1.4%, and Italy’s FTSE MIB rose 1.1% by 3.20pm London time.
Markets are closed in the UK for a public holiday.
It came as investors continued to ponder a slew of comments from the Federal Reserve’s annual Kansas City resort in Jackson Hole, Wyoming, last week.
The most watched speech at the event came from Federal Reserve Chairman Jerome Powell. The head of the US central bank said that inflation is still very high and the Fed is ready to continue raising interest rates to tame the continuously high prices.
While Powell said the Fed can be flexible, he added that it still has more to go to fight inflation. “Although inflation has come down from its peak – a welcome development – it is still very high,” he said in prepared remarks.
“We stand ready to raise interest rates further if appropriate, and intend to keep policy at a constrained level until we are confident that inflation is moving sustainably toward our target.”
The latest rally sent 10-year bond yields to their highest level since November 2007 last week, as investors grappled with the surprisingly resilient US economy and the possibility that flat inflation could force the central bank to keep interest rates higher for longer.
Higher interest rates are usually bad news for stocks, as equity investors become reluctant to raise stock prices because the value of future dividends looks less attractive versus bonds that pay more competitive yields. Bond yields move inversely with prices.
William Sales, global chief investment officer, private banking and wealth at HSBC, said the yield on the 10-year Treasury note was an attractive entry point for debt investors – and he didn’t see it causing a sell-off in the S&P 500 or other major benchmarks until now.
“It’s an entry point … for the bond market, in part because it was the real yield that moved,” Sales told CNBC’s “Squawk Box Europe.”
“The break-even rates are basically fixed, so what the market is actually pricing in is that the central bank is committed to keeping those rates higher and crushing this inflation. So, they’re credible, which is a good thing,” Sales said.
“I think ultimately it feeds into the credit market and then in financial conditions but with a larger lag and with a particularly high yield, the market still needs to expand. People keep talking about this maturity wall, and it’s very low at this time, but it will eventually come. .”
“I think that will have an impact on the stock market. But for now, stock markets are still supported by cyclical stocks in the US.”
In the Asia-Pacific region, stocks started the week higher, with mainland China and Hong Kong stocks leading the region’s gains.
The main event driving the rally in Asia was A.J Changing stock market policy from the government. China’s Ministry of Finance on Monday halved the stamp duty on stock trading in an effort to boost investment in the stock market. This came after China’s CSI 300 index fell to a nine-month low.
However, concerns remain among economists about structural issues in the Chinese economy, such as debt, demographics, and Beijing’s deteriorating relationship with the West.
In the Chinese market, shares of the world’s most indebted real estate developer, China Evergrande Group, fell 87% as trade resumed after 17 months.
In the US, US stocks opened higher, as several tech giants sought to regain ground in late August.
Back in Europe, developments are quiet on the corporate front as the region has wrapped up its busy earnings season.
Credit Suisse, now a subsidiary of UBS after a government-facilitated takeover, has reported a loss of CHF3.5 billion ($4 billion), according to a report in the SonntagsZeitung newspaper, which cited people familiar with the bank.
Shares of UBS rose about 1% on Monday. The bank is scheduled to announce its earnings on Thursday.
Technology and industrial stocks were the best performing sectors in the region, increasing by 1.9% and 1.3%, respectively.
Looking at individual stocks, France’s Teleperformance was the best performer on the Stoxx 600, up 5.4%.
Later in the week, the US Labor Department is due to release the Nonfarm Payrolls report which shows the pace of jobs and wage growth, which may guide the Fed on how to proceed with its monetary policy.